nesses. Previous studies have shown that the case for these subsidies is
short-sighted and fundamentally flawed (Burstein and Rolnick 1995).
From a national perspective, jobs are not created—they are only re-
located; that is, the public return is, at most, zero. From a state and
local perspective, the apparent economic gains are also suspect, be-
cause the gains would likely have been realized without the subsidies.
In other words, what often passes for economic development and
sound public investment is neither.
If using public subsidies to influence the location decision of pri-
vate companies is the wrong way to promote economic develop-
ment, what is the right way? Invest in human capital.Economists have long been interested in what determines the
wealth of nations. They find that several factors appear to play an im-
portant role, especially the rule of law and well-established property
rights. In addition, most successful economies are associated with a
high-quality workforce, which includes workers with formal edu-
cation as well as experienced workers with on-the-job training. In-
creased investment in skills and knowledge provides future economic
returns through increases in labor productivity (Schweke 2004).
Minnesota is a good example of how long-term investment in edu-
cation and training has helped to make the state’s economy one of
the most successful in the country (Fitzgerald 2004).For the most direct evidence on the importance of education to
the economic success of individuals and an economy, consider the
increase in the so-called education premium. Twenty years ago the
education premium, the average value of a college degree (4 years or
advanced degrees) over a high-school degree, was worth 40 percent
more in terms of lifetime earnings. Today that premium has grown to
over 70 percent (Schweke 2004), and we think it is still growing.
Early Childhood Development: An Extraordinary Public Return
Knowing that we need an educated workforce, however, does not
tell us where to invest limited public resources. Policymakers must
A Productive Investment: Early Child Development 19